BILL ANALYSIS �
SB 955
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Date of Hearing: June 20, 2012
ASSEMBLY COMMITTEE ON PUBLIC EMPLOYEES, RETIREMENT AND SOCIAL
SECURITY
Warren T. Furutani, Chair
SB 955 (Pavley) - As Amended: June 12, 2012
SENATE VOTE : 38-0
SUBJECT : Public employees' retirement: pension fund
management.
SUMMARY : Authorizes the California Public Employees'
Retirement System (CalPERS) and the California State Teachers'
Retirement System (CalSTRS) to prioritize investment in in-state
infrastructure projects over alternative out-of-state projects
if the investments are consistent with its fiduciary
responsibility. Specifically, this bill :
1)Makes various legislative declarations and findings including:
a) Due to the current economic recession, infrastructure
investment represents a significant opportunity to spur job
growth while improving California's infrastructure.
b) Over 2,000,000 Californians are unemployed.
c) Infrastructure investment can provide employment
opportunities to Californians looking for work.
d) CalPERS plans to invest up to $800,000,000 in
infrastructure projects.
e) CalSTRS plans to invest up to $650,000,000 in
infrastructure projects.
2)Authorizes CalPERS and CalSTRS, consistent with their
fiduciary duties and the standard for prudent investment, to
prioritize investment in in-state infrastructure projects over
a comparable out-of-state infrastructure project.
3)Defines infrastructure to include telecommunications, power,
transportation, ports, petrochemicals, and utilities.
4)States the Legislatures intent to encourage the board to
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prioritize investment in in-state infrastructure projects over
a comparable out-of-state infrastructure project.
5)Specifies that nothing in the bill requires CalPERS or CalSTRS
to take action that is inconsistent with its plenary authority
and fiduciary responsibilities.
EXISTING LAW : Provides, under the state Constitution by
Proposition 162, the California Pension Protection Act of 1992,
that the boards of California's public retirement systems have
"plenary authority and fiduciary responsibility for investment
of monies and administration of the system." Under Proposition
162, the Legislature also retained its authority to, by statute,
to prohibit certain investments by a retirement board where it
is in the public interest to do so, and provided that the
prohibition satisfies the standards of fiduciary care and
loyalty required of a retirement board pursuant to this section.
The Constitution also states, "The members of the retirement
board of a public pension or retirement system shall discharge
their duties with respect to the system solely in the interest
of, and for the exclusive purposes of providing benefits to,
participants and their beneficiaries, minimizing employer
contributions thereto, and defraying reasonable expenses of
administering the system."
FISCAL EFFECT : Unknown. This bill is keyed non-fiscal by the
Legislative Counsel.
COMMENTS : According to CalPERS, in 2007, CalPERS initiated an
infrastructure investment program to invest in businesses and
projects involving physical structures, networks and facilities
in key infrastructure sectors including transportation, ports,
energy, power, water, and communications.
The Infrastructure Investment Program target size is
approximately 2% of the total CalPERS fund, or about $5 billion,
with a performance benchmark of CPI + 4%, to reflect its focus
on low-risk investments and its strategic role in CalPERS'
overall asset allocation strategies. The target for US
investments is 40-80% of that amount, or up to $4 billion, with
California investments comprising up to 20% of the US target.
In 2011, the CalPERS Board allocated up to $800 million for
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investments in California infrastructure over the next three
years as part of the Program.
According to information provided by CalPERS on their
investments in California, over the past 11 years, CalPERS
invested an average of 10 percent of its Total Fund in
California. As of June 30, 2010, CalPERS had $17 billion
invested in California; 8.5% of its total portfolio and 13% of
its domestic portfolio.
CalPERS currently has private investments in California
infrastructure totaling $203 million in net asset value. These
investments are comprised of $67 million in Infrastructure
Program assets, as well as $136 million in private equity
investments. In addition, CalPERS has provided credit
enhancement for approximately $326 million in California
infrastructure bonds.
According to CalSTRS, "CalSTRS has invested more than $21.1
billion, or 13.7% of the total portfolio in a variety of
California investments as of June 30, 2011. CalSTRS' total
assets have increased by $24.9 billion or 19.2% from the
previous year, while CalSTRS holdings in California saw an
increase of $1.3 billion or 6.3%.
"The CalSTRS Investment Infrastructure Policy requires that when
considering infrastructure investment opportunities, California
should receive preference ahead of other transactions with the
same market risk and financial terms while maintaining that the
portfolio is prudently diversified and monitored. The design of
the Infrastructure Investment Policy ensures that investors,
managers, consultants, or other participants selected by CalSTRS
take prudent and careful action while managing the portfolio."
According to the author's office, "CalPERS has slated 80% of the
current fund for projects within the United States, 20% of which
will be in California...This legislation is needed to ensure
that we maximize this opportunity for California, support job
growth and spur economic investment here while making needed
infrastructure improvements crucial to improving California's
business competitiveness."
REGISTERED SUPPORT / OPPOSITION :
Support
SB 955
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None on file
Opposition
None on file
Analysis Prepared by : Karon Green / P.E., R. & S.S. / (916)
319-3957